Foreign analysts predict Paetongtarn's departure ahead of new election
Paetongtarn was suspended after the Criminal Court accepted a petition from 36 senators, accusing her of dishonesty and breaching ethical standards.
The petition stemmed from a leaked phone call between Paetongtarn and former Cambodian Prime Minister Hun Sen, in which she criticised a Thai military commander overseeing a border dispute with Cambodia, while seemingly appeasing the Cambodian leader.
The suspended prime minister now has 15 days to respond to the allegations.
Joshua Kurlantzick, Senior Fellow for South-East Asia and South Asia at the Council of Foreign Relations, told CNBC, 'I think there is no way she returns to being PM again as this is now a concerted effort by the military and its allies to finally finish off the Shinawatras, including, more importantly, Thaksin.'
Kurlantzick was referring to Thaksin Shinawatra, Paetongtarn's father and Thai prime minister from 2001 to 2006. Yingluck Shinawatra, Thaksin's younger sister, was Thailand's first female prime minister from 2011 to 2014.
The fallout from the leaked call saw the Bhumjaithai Party, the second-largest party in her governing coalition, withdraw from the alliance, leaving Paetongtarn with only a razor-thin margin in Thailand's lower house.
While it is plausible that Paetongtarn's Pheu Thai party could hold on to power for now, Kurlantzick noted that the government 'would be very shaky' and could collapse 'in a month or two.' He added that Pheu Thai is 'super unpopular now.'
Sreeparna Banerjee, associate research fellow at the Observer Research Foundation, told CNBC that even if Paetongtarn were restored as prime minister, 'her authority and coalition will remain fragile.'
The ongoing political instability could hinder Thailand's efforts to revive its economy, which is grappling with weak tourism numbers and the threat of tariffs from the Trump administration.
Banerjee remarked that without a stable head of government, 'Thailand's ability to respond decisively to external economic pressures, such as potential US tariffs, will be limited.'
Under President Donald Trump's so-called reciprocal tariffs announced in April, Thailand faces a 36% levy unless a deal is struck with the US by July 9, when Trump's 90-day suspension on the reciprocal tariffs ends.
Banerjee also noted that while Thailand will continue with Paetongtarn's government's policies focusing on stimulus measures and boosting export competitiveness, the absence of strong leadership could hinder their implementation and complicate trade negotiations.
'Investor confidence may weaken, and bureaucratic inertia could delay critical responses, at a time when Thailand urgently needs clear direction and coordination to revive its sluggish economy,' she said.
On Thursday, the World Bank sharply downgraded Thailand's growth forecast for 2025 to 1.8%, down from 2.9%, and cut its 2026 projection to 1.7% from 2.7%.
Thailand's economy grew by 3.1% year on year in the first quarter of 2025 and 2.5% for the full year of 2024.
Such pessimism is reflected in Thailand's markets, with the Stock Exchange of Thailand (SET) index plunging by around 20% for the year to date.
Paul Gambles, co-founder of investment advisory group MBMG, told CNBC's Squawk Box Asia that tariffs might not be Thailand's biggest problem. Instead, he said, 'A lot of long-term structural issues are coming to the fore for Thailand at the wrong time, the worst possible time.'
While Thailand's household debt is at five-year lows, the debt level as a ratio of GDP is higher than its South-East Asian peers, raising concerns about consumption and economic growth.
Its key tourism sector is also under pressure, with total tourist arrivals down 12% year on year in the first half of 2025, according to government data. Tourist arrivals from China, Thailand's largest tourist market, plummeted by 34% year on year in the same period.
Local media have reported that Thailand is likely to miss its target of 39 million tourists in 2025, according to the Association of Thai Travel Agents.
Thailand's political stasis seems set to continue for a while, said Kurlantzick.
In 2023, the Move Forward Party, led by Pita Limjaroenrat, stunned Thailand's military elite and royalists with an electoral victory.
However, the party failed to form a government due to opposition in the military-appointed senate over its campaign to amend lese-majeste law. The party was dissolved by the Constitutional Court a year later, leading to the formation of the People's Party, now the main opposition force.
'Maybe eventually... some kind of other coalition the military likes emerges in parliament. Maybe a new election [will happen] and the military tries to prevent the opposition from gaining a majority,' Kurlantzick said.
Gambles added, 'Domestic political turmoil in Thailand is hardly news. It's more likely just the standard operating procedure, to be honest.'
'We might get a change of Prime Minister. We may get major changes in Parliament, in the cabinet. But I think it will still be the same old, same old, business as usual.' - The Nation/ANN
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